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October 03, 2014



FYI, the following letter to the editor was published in today's Palo Alto Daily Post:
Dear Editor:

Thank you for your series on Peninsula cities’ pension debts.

I can’t speak for the other cities in your analysis, but in the case of Burlingame, where I reside, I believe the $45 million unfunded liability you highlight understates its total pension debt.

This is because, in 2006, Burlingame issued $32.9 million of pension obligation bonds to pre-pay its unfunded liability at the time. Essentially, this transformed a “soft” actuarial liability into a “hard” debt liability, the total interest cost for which will be $19.7 million per the bond prospectus. Burlingame will be paying principal and interest on this debt through 2036.

Furthermore, it is worth noting that, unlike most municipal bonds, which are tax-exempt, pension obligation bonds are taxable. This means the issuer has to pay a higher interest rate to compensate investors. Burlingame is paying in excess of 5% interest on its bonds.

Finally, Burlingame’s bonds, which did not require voter approval, are constraining the city’s future borrowing capacity. Indeed, per the fiscal year 2014-2015 budget, they are itemized as the general fund’s largest debt service obligation, with principal and interest payments totaling $3.5 million for the fiscal year. Unfortunately, this is crowding out borrowing capacity for unfunded infrastructure projects, such as a potential new community center.

As a result, the city may have no other option but to ask voters to approve new taxes for these projects, which may not have been the case if its pension debt condition were different.


Thanks, Lorne. Great catch on some great analysis especially since the Post is apparently doing well since I cannot always find a copy after mid-day. Who authored the letter?


Joe - The letter was authored by your's truly. And here's the Post's series, currently available on their homepage:





The City of Burlingame has never been more vital than it is right now.
I seriously doubt that any pension issues are small peanuts-for Burlingame.
Burlingame has more banks and financial institutes per capita than any city in California.
1000 square foot homes that cost a minimum of $1,000,000.00.
Great Parks, Great Schools, Great Infrastructure, Roads, Businesses, Tesla Car Company, BMW, on and on and on.
So maybe paying those pensions have something to do with Boom Times of Burlingame.
Stop looking for problems where there are not any.
Comparing Stockton to Burlingame is ridiculous.

Bruce Dickinson



You mean *ahem* hic.


Thank you for your comment Mr. Dickenson.
I have no idea what that means; it may be important.
"ahem" as well as "ahem" hic?
I am hoping that these comments by you and your friend are not making fun of the people who wash your cars.
Please share with the 99% your definition.
Thank you.


The "hic" addition refers to the possibility that you are drinking while you read this site. You make no damn sense.

I seriously doubt that any pension issues are small peanuts-for Burlingame. What does that mean. Do you think it is a big deal or an insignificant deal. No one can tell because it makes no sense.

Stop looking for problems where there are not any. Can you even understand what Lorne wrote? The problem is staring you right in the face but you are too likkered up to see it. hic.


Thank you.


Here is another study released today listing the cities-you-wouldn't-want-to-work for:

The California Policy Center has released a new study analyzing how severely California's cities are affected by their financial obligations to pension funds. The new CPC report, "California City Pension Burdens," compiles key financial data for 459 California cities, with a focus on the impact of pensions on their financial health.

The composite funded ratio for California's cities as of June 30, 2013 was a much improved 75%. This ratio has likely risen significantly since then, given the strong market performance over the past 18 months.
Based on the ratio of total pension fund contributions to total annual revenue, the most financially burdened cities in the CPC survey are as follows:

1. San Rafael, 17.6%
2. Costa Mesa, 14.4%
3. San Jose, 13.9%
4. San Gabriel, 13.4%
5. Sonora, 12.6%
6. West Covina, 12.1%
7. El Cerrito, 12.0%
8. Hemet, 11.6%
9. Montclair, 11.6%
10. Eureka, 11.3%

In the above list, for example, the city of San Rafael is currently paying 17.6% of its total revenue as the required annual payment to its pension fund.

Considering the ratio of total pension debt to total annual revenue, the most financially distressed cities in the CPC survey are as follows:

1. Oakland, 203.3%
2. Costa Mesa, 182.0%
3. Richmond, 180.9%
4. West Covina, 171.5%
5. San Rafael, 169.0%
6. Newark, 168.2%
7. Paradise, 156.0%
8. Pacific Grove, 151.5%
9. Foster City, 143.3%
10. Inglewood, 141.0%

In the above list, for example, the total amount owed by the city of Oakland either in the form of pension obligation bonds, or its unfunded pension liability, is currently 203.3% of the city’s total annual revenue. Some cities, such as Richmond, have pension obligation bond debt that is nearly as large as their unfunded liabilities. Moreover, in Richmond's case, most of this borrowing was in the form of capital appreciation bonds, that require no annual payments but carry a huge bill for accrued interest at the end of their term.
The study also identifies ten California cities and towns that do not have defined benefit pension plans at all – relying exclusively on defined contribution and deferred income plans.

Marc Joffe, Principal Consultant at Public Sector Credit Solutions who wrote the CPC study said “most California cities can manage their pension burdens if the stock market continues to perform well and if elected officials resist pressure to enhance pension benefits. An extended period of subpar market performance could trigger fiscal crises in a number of the cities at the top of our lists.”

Ed Ring, CPC’s Executive Director noted that “it is important to recognize that if there is a market downturn, recent gains in funded status will be reversed. The 80% funded ratio that is considered the minimum acceptable level for any pension system should not be achieved during a bull market, but rather at a market bottom.”


From the SacBee today:

CalPERS is about to raise pension contribution rates again, this time by more than 9 percent, a move that will cost state government and local school districts nearly $600 million.

The increases are the latest step by CalPERS to gradually shore up its finances. In early 2014, CalPERS said it would embark on a series of significant rate hikes, and on Tuesday the pension fund’s finance and administration committee recommended higher rates for the upcoming fiscal year.

While CalPERS is continuing to deal with the lingering effects of the 2008 crash in the financial markets, it pinned the latest rate hike primarily on growth in government payrolls and recent demographic assumptions that show retirees living longer.


More on pension obligation bonds (which Burlingame issued in the past and has outstanding):


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